Abstract
The negative performance of pension funds since the Financial Crisis started in 2007 has provided the market with a new stream of data that exposes the Great Moderation as nothing more than a Great Myth. This Myth, with its impeccable intellectual background, became the framework for an entire generation of financial market practitioners, resulting in the fall of future retirement income for savers as well as increasing unfunded liabilities for tax payers. In conjunction with this new stream of data, a groundswell of opinion has begun to attack the very foundations of the Myth as it no longer fits the facts. Indeed, some economists and successful investors have argued that it never fitted the facts and that economic modelling is incapable of providing any useful predictions about the future anyway. An economy is a highly complex system and the simple assumptions made that are supposed to help predict the trajectory of an economy are highly dubious. However, like any idea that has had some longevity, it is unlikely to go down without a fight.
Professional economists, after Malthus, were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation. A discrepancy the ordinary man has not failed to observe.
John Maynard Keynes1
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Notes
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© 2013 Thomas Aubrey
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Aubrey, T. (2013). From model failures to streams of data. In: Profiting from Monetary Policy. Palgrave Macmillan, London. https://doi.org/10.1057/9781137289704_3
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DOI: https://doi.org/10.1057/9781137289704_3
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